The Goodyear Tire & Rubber Company (NASDAQ:GT) Q4 2022 Earnings Call Transcript

The Goodyear Tire & Rubber Company (NASDAQ:GT) Q4 2022 Earnings Call Transcript February 9, 2023

Operator: Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear’s Fourth Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After some opening remarks, there will be a question-and-answer session. . Today on the call, we have Rich Kramer, Goodyear’s Chairman and Chief Executive Officer; Christina Zamarro, Chief Financial Officer and Darren Wells, Chief Administrative Officer.. During this call, Goodyear, we’ll refer to forward-looking statements and non-GAAP financial measures. Forward-looking statements involve risks, assumptions and uncertainties that could cause actual results to differ materially from those forward-looking statements.

For more information on the most significant factors that could affect future results, please refer to the important disclosures section of Goodyear’s fourth quarter 2022 Investors letter and their filings with the SEC, which can be found on their website at investor.goodyear.com, where a replay of this call will also be available. A reconciliation of the non-GAAP financial measures that may be discussed on today’s call to the comparable GAAP measures is also included in the investor letter. I will now turn the call over to Rich Kramer, Chairman and CEO.

Richard Kramer: Great Thanks, Ashley. And good morning, everyone. Thanks for joining us today. We released our fourth quarter Investor Letter after the market closed yesterday that we received very good feedback from investors on both our letter and our Q&A call format following our third quarter release. So as we did last quarter, we use this time again to focus solely on your questions. Now, just before opening the line. I want to acknowledge as you’ve heard earlier that both Christina and Darren are joining me on the call today. As you saw with the announcement in December, Christina became our Chief Financial Officer as of January one, replacing Darren who moved into a new role of Chief Administrative Officer. Congratulations to both of them and again they’re joining me here.

I’m excited to continue to partner with both of them in their new roles. And given the transition, Darren is joining us on the call today, but Christina and I will take the lead in responding to your questions on these calls as we go forward. So with that, Ashley, let’s open up the call for the first question.

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Q&A Session

Operator: Certainly. We’ll take our first question from Emmanuel Rosner with Deutsche Bank. Please go ahead.

Emmanuel Rosner: Good morning. Thank you so much for the questions and agree with the feedback on the call format. So very much in favor of it.

Richard Kramer: Thanks, Emmanuel. We appreciate the feedback and Christina pushed us that way. So well done, we appreciate that.

Emmanuel Rosner: Great. First question, maybe I think last year, around the same time, I think you had helped us out with sort of like framing sort of a base case scenario for what could happen to free cash flow for you guys for the full year ahead under certain conditions. So will we be able to go into this discussion for 2023. Obviously, appreciate all that in this slide. Just curious knowing all you know, what this request will look like for you?

Christina Zamarro: Sure. So Emmanuel. Hi, this is Christina. And let me start by saying thank you for the comments on the Investor Letter. And I have to send out thanks to our teams, this has been a great push by our Investor Relations Team, FPNA our controlling teams, all the put that together. And again, we’ve received really great feedback on that. As far as free cash flow in 2023. And if you look through the drivers, we’ve laid out as part of our letter, and if you were to take the assumption, and so just stay with me on the assumption, if you were to take the assumption that our EBIT was going to be flat in 2023 with our EBIT in 2022, which was about $1.1 billion. You should get to a level of free cash flow in the range of about $400 billion.

And that’s just reflecting the year-over-year improvement in working capital. Emmanuel, what I’d add to that is, it’s not that we’re targeting flat earnings. Our goal is to improve earnings. And after a really tough setup in the first quarter, as you read in the letter, the trajectory should improve meaningfully as we move to the remainder of the year. In the second quarter, our goal is for segment operating income to approach 2022’s levels, with volume stabilizing and given in lower year-over-year raw material cost increases that we’re expecting in the second quarter. Assuming a relatively stable economic outlook, then we would begin to see the benefits in the second half of higher volume on either comparables, strong growth in Asia-Pacific driven by a recovery in China and lower inflation levels that we’re expecting in the first half of the year.

We would also expect the benefits from our recent cost actions that we’ve announced. And then of course, at current spot prices, tailwinds and our raw material cost. Historically, this has been the time in the cycle where we’ve seen growth in earnings and growth in our margins as well.

Emmanuel Rosner: Okay, that’s, that’s helpful. And then I guess, following up on some of the pieces of the fruit, I guess of the free cash flow guidance. I think CapEx was gathered at $1 billion for the 2023. This compares to maybe a $1.2 billion $1.3 billion framework that you discussed previously, in terms of the investments you need to make in gross. What is enabling you to sort of like keep it around the $1 billion? And is that roughly sort of like, just maintenance CapEx? Are you cutting back at, I guess, where are you cutting back?

Christina Zamarro: Yeah. Good question Emmanuel. And so what I will tell you is, as we went through 2022, we just scale back our plans for capital expenditures, just given the outlook for the global macroeconomic environment. As we look at 2023, we expect to continue to invest in the Americas and in Asia-Pacific, although investment levels in EMEA will decline, just given the current macroeconomic outlook there. We continue to allocate capital to high return projects that will improve our overall competitiveness over time.